SEZ today, gone tomorrow!

In six states of India, close to 5500 hectares of land acquired for 52 SEZs were subsequently de-notified and diverted for commercial purposes! Himanshu Upadhyaya draws attention to this and other findings in the CAG audit of SEZ performance, which leave several questions unanswered.

On 28 November 2014, a 130-page long Performance Audit report on SEZs (Special Economic Zones)was tabled in parliament. How much time was spent in that session by our parliamentarians discussing those audit findings is anyone’s guess.

Did the figure of tax exemptions availed by operational SEZs reported therein – a whopping Rs 83,100 crores - create a pandemonium in the house? Did opposition benches force the ruling government to abide by the recommendations suggested by CAG of India and bring about mid-course correction?

One is forced to ask the above questions since it is for the first time that a constitutional audit report has acknowledged people’s protests against SEZs by articulating the rationale for selecting this performance audit.

It states: “Post the enactment of the (SEZ) Act, the country had witnessed several protests resisting land acquisition initiatives for SEZs, pointing towards a need for their social evaluation in addition to the defined objectives. Though a number of deficiencies in administering indirect taxes were brought out in the Report No 6 of 2008 of the CAG of India, besides several audit findings in the subsequent years on inadmissible concessions given to SEZs, a comprehensive assessment of SEZs was impending. Considering the magnitude of exemptions availed by SEZs, it was imperative to assess their performance vis-à-vis the duties forgone.”

The performance audit report comes with a shock in Appendix 2. The CAG of India reports to the citizens and to the parliament that files in relation to as many as 46 SEZs were not produced for audit, and in case of one SEZ, an incomplete file was submitted for the audit! When a constitutional institute fails to get access to ‘information about SEZ’, you are left wondering whether to be complacent in the thought that we have witnessed the enactment of the Right to Information Act about nine years ago!

A sector-wise analysis of SEZs reveals the pre-dominance of Information Technology/IT Enabled Services SEZs (56.64 percent approvals, 60 percent notified and 60 percent operational). Compared to this, multiproduct SEZs, which are more labour and capital intensive, are only a few (9.60 percent approvals, 6.37 percent notified and 8.55 percent operational).

This might not come as a big surprise if one looks at the time period over which tax exemption had been granted to IT/ITES units under the previous scheme titled Software Technology Parks. It was noticed that there was a tendency to migrate from STP status to SEZ once the tax exemption period under the previous scheme had expired.

For Special Economic Zones, 45635.63 hectares land got notified. However, the operations for stated ‘public purpose’ have commenced in only over 28488.49 hectares (i.e. 62.42 percent) land. Six states – namely Gujarat, Andhra Pradesh, Karnataka, Maharashtra, Odisha and West Bengal – accounted for 39245.56 hectares of land notified for SEZs.

Land for SEZ? Ahem...not really!

During the audit scrutiny, the CAG of India observed a curious trend, wherein developers approached the government for allotment/purchase of the land citing the SEZ as a purpose, and later sought denotification of the same land within a few years.

The Audit reported that in the above mentioned six states, 52 SEZs involving 5402.22 hectares of land (i.e. 14 percent) got denotified and the land in question got diverted for other commercial purposes. Out of these 52 SEZs, 100 percent of the notified land was de-notified in respect of 35 developers, thereby putting a huge question mark over the logic that had gone into deciding the area of land acquired and the subsequent application for de-notification.

This performance audit report by the CAG of India should also have given the names of these 52 SEZs, where such de-notification was witnessed. This becomes crucially important in a policy environment where even though SEZ land, initially acquired for ‘public purpose’ using government machinery, cannot be sold by developers, once the same land has been de-notified, it can be used or sold by the developers for other ‘greater commercial purposes’.

CAG auditors just cite one example to illustrate this incidence, namely that of Sri City SEZ in Hyderabad where they observed that 228.61 hectares out of total de-notified land measuring 449.54 hectares was allotted to 18 ‘customers’. What is more, the details regarding the allotment were not on record! Given such cases, the CAG office should have walked an extra mile to tell us what happened in the case of those other 51 SEZs as well.

At the least, in the illustrative case mentioned above, citizens and parliament should have been told who those 18 lucky ‘customers’ were! Readers can start shooting applications under the RTI Act to seek the details that could ‘fill in the blanks’ in the text of the audit report.

Idle land

Let us now take a hard look at the extent of land notified for SEZs, but which are now lying idle in seven states that account for the highest number of SEZs approved. Audit scrutiny revealed that land allotted to 424 SEZs – a whopping 31886.27 hectares – was not put to any use so far, even though approvals and notification in as many as 54 cases date back to the year 2006, when the SEZ act came into being.

Amongst these seven states, West Bengal tops the list with 96.34 percent of acquired land lying idle, followed by Odisha at 96.58 percent, Maharashtra at 70.05 percent, Karnataka at 56.72 percent, Tamil Nadu at 49.02 percent, Andhra Pradesh at 48.29 percent and Gujarat at 47.45 percent.

Out of the 54 cases that can be traced back to 2006, audit scrutiny pointed out that in 30 SEZs (encompassing 1858.17 hectares) in Andhra Pradesh, Maharashtra, Odisha and Gujarat, the developers had not commenced any sort of investment and the land has been lying idle in their custody for 2 to 7 years!

The SEZ act envisaged that a minimum of 50 percent of the land notified for SEZ shall be used as ‘processing area,’ signifying the area within the SEZ to be used for manufacturing, services and infrastructure for units. CAG auditors carried out an analysis of the extent of land put to such use and found that 18 SEZs, involving a total area of 4815.19 hectares of land, could utilize only 16.29 percent land as processing area, leaving the rest idle.

As another example, 6472.86 hectares of land was notified for Adani Ports in May 2009, but the developer had utilised only 833.77 hectares, leaving 5639.09 hectares (87.11 percent) unutilised so far.

In a final masterstroke, the performance review of SEZs by the CAG underlines a moot question: “Considering the huge extent of land that had been de-notified with no economic activity for several years, the big question that remains to be answered is whether this land would be returned to original owners from whom it was purchased invoking ‘public purpose’ clause.”

Will the affected people who lost their land towards such ‘Sanctified Extortionist Zones’ mount a threadbare analysis of this performance review, and press opposition parties to ask for a thorough debate on the content of this audit report in parliament during the next session?